Govt-owned power plants: MoF opposes Rs177.8bn payment due to limited fiscal space

ISLAMABAD: The Ministry of Finance (MoF) has reportedly opposed payment of Rs 177.8 billion to the government=owned power plants due to constraints in fiscal space, official sources told Business Recorder.

Sharing the details, the sources said, the Economic Coordination Committee (ECC) of the Cabinet has reportedly opposed the approval by Cabinet Committee on Energy (CCoE) of the summary of August 26, 2020, submitted by Power Division regarding reduction in capacity charges of Government owned power projects.

CCoE had also decided that: (i) “the financial settlement of payables to Government owned Power Plants (Rs. 357 billion as of June 20) shall also be considered at par for any further settlement with IPPs pursuant to the ongoing negotiations by the IPPs Committee..." The decision was ratified by the Cabinet on September, 08, 2020

The CCoE and ECC considered the Report by Implementation Committee and approved the payment mechanism and agreements with IPPs in meetings held on February 8, 2021 which was ratified by the Cabinet on February 9, 2021.

The approved payment mechanism is as follows "payables to IPPs as on November 30, 2020, are to be made in two installments; first installment will be forty percent of said payables and will be paid 1/3rd in cash 1/3rd in Sukuk and 1/3 in P1B bonds at floating rate of T-Bill +70 bps and remaining sixty percent of the said payable within 6 months of the first installment.”

The sources said, ECC, on May 05, 2021, has approved the payment of first installment (40% of payables to IPPs as on November 30, 2020) of Rs 89.86 billion to the IPPs under pre-1994, 1994 and 2006 Power Policy which was ratified by Cabinet on May 18, 2021.

In the light of CCoE and Federal Cabinet decision, the Government owned power plants filed the tariff revision and Nepra issued the revised tariff.. In line with the decision, financial settlement of the payables to Government owned power plants is to be considered.

The payables to Government owned power plants, as on November 30, 2020, are of Rs 434.45 billion.

As per the proposed mechanism, an amount of Rs 177.813 billion is to be paid to the Government power plants that have reduced their tariff, as first installment of 40%.

Power Division submitted the following submissions to ECC of the Cabinet for consideration and approval: (i) payment mechanism for the government-owned power plants on the same line for 1PPs and ;(ii) release of Rs 177.813 billion , in favor of Government owned power plants that have reduced their tariff, as first installment of 40% in the light of approved mechanism.

According to sources, summary was circulated to Ministry of Water Resources, Finance Division, Ministry of Energy (Petroleum Division) and Strategic Plans Division for comments. Ministry of Water Resources and Strategic Planning Division supported the proposal with a request to amend payment mechanism. Ministry of Energy (Petroleum Division) supported the proposal. However, Finance Division has not supported the proposal considering constraints to fiscal space.

An official told this scribe that ECC, in its meeting held on July 16, 2021 has directed Power Division to re-work the due payment to the government owned power plants. However, adjustment was approved in payment to nuclear power plants to the tune of Rs 19 billion, which will lead to lower circular debt.

According to the official, payment to IPPs established under 2002 will be made after amendment in Implementation Agreement (IA) in the light of Power Division's proposal, already approved by the CCoE and Power Division prepared the proposal keeping view the advice of the NAB.

Copyright Business Recorder, 2021